The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts

Abstract

We review the events that led to the May 2010 and July 2011
bailout agreements. We interpret the bailouts as outcomes of
political-economy equilibria. We argue that these equilibria were
likely not on the Pareto frontier, and sketch political-economy arguments for why collective policymaking in the Euro area may lead to suboptimal outcomes.